Here’s How to Break the GOP Logjam on Health Care

Refundable tax credits aren’t the only way to fund care for those who can't afford it.

There are two paths to a genuine bipartisan consensus on contested issues. One is compromise. The other is innovation.

On repealing Obamacare, the GOP tried the first. Now it’s time for the second.

Take refundable tax credits, which proved a major sticking point in the debate last month. As of January, 10.1 million Americans obtained health insurance thanks to the credits available through Obamacare. But conservatives rightly regard “refundable” as little more than a euphemism for “subsidy”: it means that if someone doesn’t have enough tax liability to make use of a normal tax credit, they can get the money in the form of a check from the government instead (sent either to them or directly to the insurance company). In Republicans’ eyes, simply lowering the amount—the failed approach of the GOP leadership—does not make these tax credits any less a subsidy.

The preferred plan of the Freedom Caucus, advanced by Sen. Rand Paul, shows little bipartisan promise—and nor is it very innovative, for that matter, at least when it comes to helping the so-called near-poor. The plan strips away the refundable part of the tax credits, offering a straightforward $5,000 credit for those who contribute their earnings to a Health Savings Account, as well as a deduction for health-insurance premiums that can be applied to payroll taxes in addition to income taxes. (A deduction, as opposed to a credit, reduces taxable income rather than being directly subtracted from one’s tax bill.)

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At the start of 2015, it was estimated that the average subsidy per person enrolled on the Obamacare exchanges would be $4,330. It might seem like Paul’s tax benefits were designed to cover these costs. But many Obamacare enrollees don’t make enough money to benefit from nonrefundable tax perks.

Obamacare’s tax credits are most popular with those making between $11,770 and $17,655, or between 100 and 150 percent of the poverty level. Even considering both income and payroll taxes, these folks pay far less than 10 percent of their income to the federal government—indeed, their income-tax liability is usually negative thanks to the refundable credits already available. So they can’t come close to taking full advantage of Paul’s offerings.

Is there a way to help these people that doesn’t involve the strong arm of government? The experience of states points to two alternatives.

One is a transferable or tradable tax credit.

These are used all the time to spur on economic development in states, particularly to bring in major film productions. A state will issue a tax credit to one of these companies—but the company might be in town for just a few weeks, so it won’t have enough tax liability to take full advantage of the credit. The company then sells the surplus amount to a wealthy investor or large company, for, say, 90 cents on the dollar, using the earnings to fund the film.

Normally, it is businesses that sell the credits and reap the benefit. But at least one state, Colorado, also has transferable tax credits for individuals who donate some of their land to conservation purposes, based on the value of the donated land.

Transferable tax credits are a way for government to incentivize behavior—such as economic development and environmental conservation—without higher taxes, regulatory mandates, and subsidies. In fact, quite the opposite: they have the added bonus of reducing the amount investors and companies owe in taxes.

Could the same concept be used to help low-income Americans purchase health insurance?

Two experts—one an economist with a background as a health-care consultant, the other a health-care policy specialist—expressed skepticism. Ed Mazze, an economist at the University of Rhode Island, questioned the feasibility of implementing a broad-based transferable tax credit to help individuals obtain health coverage. For businesses, tax-credit brokers sometimes handle the transactions. For individuals, exchanges would need to be set up.

These do already exist for businesses. And many individuals already have experience using the Obamacare exchanges. But Americans’ patience for complicated online exchanges may have already been exhausted. Plus, the notion of the poor selling their tax credits to large corporations seems to some to carry the perceived risk of predatory price-haggling. As Shana Charles, a faculty member at the UCLA Center for Health Policy Research, told me, “I think this is really something that would make it even more complicated and would in essence be trading people’s lives in a way that I don’t think would be appropriate for health insurance.”

But there is another state model for using tax credits, and this one involves broad-based assistance for the low-income: tax-credit scholarships. According to the National Conference of State Legislatures, such programs are in place in 17 states. The program allows businesses to donate money to an organization that issues scholarships to lower-income students to attend private schools. The business, in return, gets a tax credit.

In Florida, donations have amounted to $2.7 billion, funding over 575,000 scholarships since 2002, according to Step Up for Students, the nonprofit that primarily awards the scholarships. The credits there are “dollar-for-dollar”: businesses reduce their tax payments by the exact amount they contributed.

Still, the Florida program reportedly saves the state money. Every dollar that goes to the scholarships results in $1.49 in savings for state government, according to the national legislators group, because private-school tuition is cheaper than the per-pupil cost of a public school.

Many businesses see their contributions as a long-term investment in having an educated workforce. Some also simply want to be good corporate citizens, help fight poverty, and like the idea of having a say in where their tax dollars go, according to Jillian Metz, director of development for Step Up for Students.

And there already is a precedent for government entities soliciting private donations to fund health insurance for the needy. In the 2000s, amid a statewide debate over the issue, a number of California counties took the initiative to provide health-care coverage to children whose families were not eligible for existing public assistance for financial reasons or because of their immigration status, according to Charles. Their strategy was simple: they asked local businesses to help out.

For a while, it actually worked. One of the programs covered over 80,000 children at its peak in 2007, according to a 2012 report from the California HealthCare Foundation. But over time, businesses—which were not receiving any major financial benefit—lost interest, according to Charles.

It’s not hard to envision how something like the California program could be reinforced with Florida-style tax credits and extended across the country. Charles considers the idea plausible. “The things you have come up with are good temporary solutions,” she said. (Her ideal is a baseline health-insurance safety net for all Americans, close to a single-payer system, but with room for private insurance add-ons: more like Australia and Germany than Canada and Great Britain.)

Such a program seems to promise a surplus of winners over losers: moderate Republicans queasy about repealing Obamacare without a real replacement, advocates for smaller government, advocates for expanded health-care access, businesses that want to be good corporate citizens and reduce their tax liabilities at the same time, and, of course, millions of low-income Americans who cannot afford to purchase health insurance on their own.

For now, Obamacare remains the law of the land. But Republicans aren’t giving up. And the next bill that passes the House may be an even greater evisceration of Obamacare than the milquetoast version that flopped in March. The program suggested here may be imperfect, but under the current political circumstances, it might be our best hope of insuring the near-poor.

Stephen Beale is a freelance writer based in Providence, R.I. Email him at [email protected].

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15 Responses to Here’s How to Break the GOP Logjam on Health Care

Maybe it would help if the cost of Healthcare was actually lowered instead of spreading who pays for what around. Ocare, Trumpcare, Ryancare, Idontcare, or whatever, is not going to solve the increasing cost of Healthcareas long as billions of dollars in profit are on the table.

How is a transferable tax credit NOT a subsidy? The government loses the tax revenue represented by the credit, which is no different than the government spending the money directly. Either way, the government has that much less money, in the end.

The Florida program for K-12, private school scholarships “saves” the State money, if it really does at all, precisely because the State is already on the hook for providing “free,” public primary and secondary school education for all its children. Without the program, so the theory goes, anyway, the students receiving the scholarships would be attending public schools. Which would then cost the State x number of dollars, with x being about half as much again as the lost revenue attributable to the tax credit.

But the whole thrust of the GOP, when it comes to health care, is that the Fed should not be responsible for paying for health insurance. And I don’t see how it makes all that much difference, from that standpoint, whether the Fed pays the health care provider directly (as in Medicare and Medicaid), subsidizes private health care insurers for the benefit of individuals (as in Obamacare), or gives tax credits, whether refundable or transferable or both, to individuals to pay for their health insurance.

And there is even less difference between the last two programs. Which makes the Florida school program analogy even less persuasive. The alternative to the transferable insurance tax credit is not direct provision of health care service, as it is with education in Florida, but rather the existing Obamacare subsidies. And so the “savings” are not likely to be replicated.

Maybe it is all just semantics. Republicans love tax cuts, tax deductions, and tax credits, but hate “subsidies.” That they often amount to the same thing is not important, apparently.

The number one health problem in the US is the cost of health insurance. This is caused both by the high cost of health services as well as health insurance overhead. As long as Americans have a legal right to be treated in hospital emergency rooms and third party payers, we will not have a consumer market to control costs. This leaves government cost controls like Medicare as our only option. Switzerland, which has the most free enterprise health care system of major countries, imposes cost controls.

“Inside the box” attempts at reform are doomed for failure because they mostly just move the “who pays” food around the plate without directly attacking the root causes of high health care costs – the Crony cabals and rackets (Big AMA, Big Insurance, Big Hospitals, Big Pharma) that comprise the health care system.

If the per capita cost of health care is now approaching $10,000, it will still be around $10K no matter how the Politicos shuffle the existing deck. Stephen Beale’s proposals are just more of the same that protect the existing out of control cost model.

Both Obamacare and Republican plans merely hope that actual costs would be impacted indirectly through regulatory mechanisms that redirect consumer behavior. Unfortunately, the main consumer redirect is care avoidance because consumers can’t afford it. (Either the premiums directly and/or the stratospheric deductibles.)

Replacing Medicaid and Obamacare with low value, high deductible “catastrophic” plans will not fix the problem of access, no matter who pays. Because any non-trivial medical event is a “catastrophe” for someone who does not have $6,000+ in CASH in his/her pocket to pay the deductible.

A genuine reform approach would be to explicitly identify barriers to service cost reduction and address those directly. E.g.,

A shortage of physicians which is explicitly obvious. So who in the reform movement has actually stated the physician shortage as a cost driver and invited solutions to fix it? How hard is it for interested parties like Stephen Beale to acknowledge that up front? Why don’t they?

A genuine reform target would be to increase the number of MDs/DOs awarded annually by say 25%. With a parallel increase in the number of residency slots to accommodate those graduates.

How about med school academies analogous to the military academies? Eight regional med schools with 500 students per class each would pump out an additional 4,000 docs a year at full implementation.

Opaque pricing. Where are the calls for transparent pricing for ALL medical services prior to treatment? As proposed by Steven Weissman:

Exploding generic drug costs. Demand for those drugs is obviously completely inelastic. Why not have the government forecast out demand for generics and bid out manufacturing and distribution annually? A bidding process for generics would force down pricing to the marginal cost of production. That could be attempted on a limited trial basis to see if it works.

There are no “good guys” on the health care supply side (including HHS Secretary Dr. Tom Price who is in the tank for his AMA Crony pals.) The cartels actively suppress free market mechanisms. That gaming should be addressed directly by notional “reformers”. But it’s not because the “Think Tanks” and “thought leaders” that should be advocating for genuine reform are actually stooges paid to front for the Health Care Cronies that want to retain the exiting pathological cost model.

An objectives statement by both Congress and the President should put a stake in the ground at a specific per capita cost reduction target for health care. But the associated genuine reforms will not be considered because then the Crony stakeholders would have to be lined up for some level of hair-cut. And nobody in DC has the guts to take up the clippers. Because the Cronies hold the clippers. As well as control the paid mouthpieces that consciously circumvent the fundamental reforms that could actually reduce the cost of care.

The U.S. health care model can’t be reformed by smoke and mirrors “who pays” tax code machinations, it can only be blown up. And don’t worry, that implosion is coming.

So when all is said and done, once you get through all the convolutions, what is left is you are leaving healthcare in the hands of charity.

Businesses that “want to be good corporate citizens”, or who just want the tax credits, will voluntarily pay for everyone’s healthcare, while those who do not have those motivations will just go along their merry way thumbing their noses at the suckers who are less ruthless. (If corporations are people, I guess they have noses to thumb.) Ebenezer Scrooge would be right on board.

This essay made my mind glaze over. It is simply another highly complex scheme to preserve the status quo.

Our so called health care system is, on a moral level, just plain evil. It is monopoly and crony capitalism as its best, leveraging the fact people fall ill to profiteer from them. It places profit (extraordinary ones) over people’s financial and physical well being. Illness strikes, and the system lays claim to a person’s wealth, including bankruptcy. It is predatory and extortionist, and it is testament to how malleable the general public’s mind is that we are not more up in arms about than we are. It is incredible that our society allows the propagation and sanctioning of such practices. That said, there are sign that a breaking point is near.
Absolutely, free enterprise is the driver and generator of a prosperous society, I in no way would abolish free enterprise. However some things are done best by government and health care is one of those things. Those here who might label me Marxist/socialist for saying this need to learn the difference between real socialism, and a public institution established by voters and representatives in a republic. Private enterprise and markets can be compared to nuclear power, or a powerful horse , or fire. It is powerful productive, and it emphatically needs to be harnessed, controlled, and directed. Otherwise it runs out of control and people are hurt and killed.

And that is what gives away the real truth, which is that this isn’t about taxes or subsidies or “too much government.” It’s about contempt for people who are working two and three jobs to make ends meet and are one health crisis away from what constitutes actual poverty. It’s the same thing that ensures any program labeled “assistance” will include a provision for “means testing” that sets the maximum allowed to get help insultingly below the reality of what it required for people to live on.

The majority of the US population wants a national health service, and that includes a lot of conservative voters who are beginning to see through the propaganda they’ve been fed that “free markets” will provide them with the road to paradise.

TZX4. Well said. Conservatives and Libertarians will have to rethink the notion that healthcare is just another commodity like shoes. I’ve never felt the life and death trauma for a loved one on my way to my shoe store’s emergency room.

We’ve been empty nesters for 20 years; our community is a better place for the taxes we continue to pay to help educate our neighbor’s children. Why is it not also a good thing to help our neighbors to be healthy as well as educated with our tax dollars?

The free market? The market says that the more you need health insurance the more you should be willing and expected to pay (just like any other commodity). What about a middle or low income family who has serious health problems they can’t afford to deal with alone? Do we as a community tell them that if family or local charity resources are not enough their lives are worth less than a wealthy family? I think not. Being pro-life should include the born as well as the unborn.

@EliteComminc And for Pete’s sake, no use of tax payer monies to kill children in the womb.

First, nobody kills “children” in the womb. I’m not sure how a child would climb in there in the first place.

Second, nobody’s spending Federal dollars on abortions. Now, do you consider a birth control measure that might prevent a multi-celled fertilized from implanting on walls of the womb to be “killing children”? If so, you’re so far to the extreme of the debate as to be useless to it.

Third, the neonatal costs associated with trying to keep alive a lot of seriously malformed children for a few days or weeks can be a tremendous burden on the medical system – one such case can easily eclipse the costs of well baby care for dozens of healthy newborns.

If the parents, in consultation with their doctor and religious guidance decide they don’t want to incur that cost, or impose it on their insurance company – why should the state be able to force their decision?

At least shouldn’t the state have to take EliteComm’s tax dollars to use for that high dollar neonatal care, instead of creating an unfunded mandate?

Ohhh I just remembered we already have healthcare systems for the elderly, children and poor people like myself. Medicaid, Medicare, SSC, and an assortment of low income health clinics in nearly every state.

Here’s another idea. Repeal the current Healthcare mandate, allow the insurers, health providers to compete for the customers and by competition I men none f that slight of hand of hand conglomerate subsidiary competition.

Imagine that supposed supporters of the market being afraid of the market.

And by the way,

you might want remove the several million noncitizens tapping into the system regardless of the healthcare system – they are stealing.

This author would have credibility if he referred to the ACA instead of ‘Obamacare’, a label associated with a particular political perspective. This taints the article from the outset. Nor does he provide any evidence of the “compromise” attempt with the Democrats, only references to the intra-Republican negations, as if they are the only players who matter. I guess seven years wasn’t long enough to craft a viable alternative –

So whatever happened to the original concept of the Health Savings Account? Namely, the credit can be applied to an insurance purchase, a deductible, an out-of-pocket expense, but preferably rolled over like a retirement benefit, to accumulate like a whole life policy.

Frankly if this exchangeable credit business worked, it might have shown up as a mechanism similar to a life insurance surrender provision, whereby a beneficiary would receive money before actually dying.Many people also lament the rollback of the universal-whole life provision, which allows borrowing against an insurance policy.

The exchangeable credit also resembles the discontinued PIK program, which pays a farmer in a commodity in lieu of actual cash. This was supposed to offer a quid pro quo between levels of planting, levels of surplus, and price fluctuations.